oversight

Dallas Housing Authority, Dallas, Texas, Management Failed to Implement Internal Controls over Its Housing Choice Voucher Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-03-20.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                                  Issue Date
                                                                               March 20, 2008
                                                                  Audit Report Number
                                                                               2008-FW-1006




TO:         Paula O. Blunt
            General Deputy Assistant Secretary for Public and Indian Housing, P

            Justin R. Ormsby
            Director, Office of Public and Indian Housing, 6APH


FROM:       Gerald R. Kirkland
            Regional Inspector General for Audit, Fort Worth Region, 6AGA

SUBJECT: Dallas Housing Authority, Dallas, Texas, Management Failed to Implement
         Internal Controls over Its Housing Choice Voucher Program


                               HIGHLIGHTS

 What We Audited and Why

             As part of our strategic plan objective to assist the U. S. Department of
             Housing and Urban Development’s (HUD) efforts to reduce rental
             assistance overpayments, we audited the Dallas Housing Authority’s
             (Authority) financial management of its Housing Choice Voucher program
             (voucher program). Our objective was to determine whether the Authority
             had the necessary financial controls in place to operate its voucher
             program in an efficient, effective, and economical manner.


 What We Found


             Contrary to requirements, Authority management failed to implement
             internal controls over the financial management of its voucher program
             and did not exercise sound management practices. Although this has been
           an ongoing weakness, Authority management did not take substantive
           measures to ensure that basic controls were established. As a result, the
           Authority’s financial data were unreliable, its fund balances were
           incorrect, and it could not assure HUD that it spent program funds in
           accordance with its annual contributions contract or federal regulations.
           Further, the Authority certified to HUD that it expended about $32.4
           million less in program funds than it received in 2005 and 2006.

What We Recommend


           We recommend that the Director of the Fort Worth Office of Public and
           Indian Housing require the Authority to support or repay more than $32.4
           million, void and properly reclassify $648,530 in outstanding checks, and
           implement effective internal controls over the financial operations of its
           voucher program. In addition, we recommend that the Assistant Secretary
           for Public and Indian Housing take appropriate administrative sanctions,
           up to and including issuing a notice of default in accordance with section
           15 of the annual contributions contract for the Rental Certificate and
           Rental Voucher Programs to ensure that the Authority complies with
           requirements.

           For each recommendation without a management decision, please respond
           and provide status reports in accordance with HUD Handbook 2000.06,
           REV-3. Please furnish us copies of any correspondence or directives
           issued because of the audit.

Auditee’s Response


           We provided the draft report to Authority officials on February 8, 2008.
           We held an exit conference with Authority and HUD officials on
           February 25, 2008. The Authority provided written comments to our draft
           report on March 3, 2008.

           The Authority generally acknowledged the weaknesses of its financial
           management controls during the audit period. The Authority’s response
           also included positive steps taken to strengthen its overall internal
           controls. The Authority’s response along with our evaluation of the
           response can be found in appendix B of this report. Due to the volume of
           supporting documentation provided, we did not include the attachments
           submitted with the response. The attachments are available for review
           upon request.




                                        2
                        TABLE OF CONTENTS

Background and Objectives                                                        4

Results of Audit
      Finding:   Authority Management Failed to Implement Internal Controls to   5
                 Ensure That It Properly Managed Program Funds

Scope and Methodology                                                            18

Appendixes
   A. Schedule of Questioned Costs and Funds to be Put to Better Use             19
   B. Auditee Comments and OIG’s Evaluation                                      20




                                         3
                   BACKGROUND AND OBJECTIVES

In 1938, the Dallas City Council established the Dallas Housing Authority (Authority) to
provide housing to low-income persons. A five-member board of commissioners
(board) 1 governs the Authority. The board appoints a president and chief executive
officer to administer the operations of the Authority. The Authority’s main office is
located at 3939 North Hampton Road, Dallas, Texas.

The Authority administers the U. S. Department of Housing and Urban Development’s
(HUD) Housing Choice Voucher program (voucher program). Under the voucher
program, HUD pays rental subsidies so that eligible families can afford decent, safe, and
sanitary housing. The Authority administers the voucher program pursuant to an annual
contributions contract with HUD. Under the contract, HUD agrees to provide financial
assistance to the Authority, and the Authority agrees to comply with HUD requirements
in administering the voucher program. The Authority is responsible for establishing
internal controls to plan, organize, direct, and control program operations including
systems for measuring, reporting, and monitoring fiscal performance.

The Authority administers more than 17,000 vouchers. In 2005 and 2006, HUD provided
the Authority with more than $286 million in funds for housing assistance payments for
its voucher program and more than $18.5 million to administer the voucher program.

This is the second of three planned reports on the Authority’s voucher program. In the
first audit, we reported that the Authority mismanaged its portable vouchers; collected
$3.7 million from HUD based on inaccurate, unreliable, and altered records; and violated
HUD requirements. 2

Our audit objective for this audit was to determine whether the Authority had the
necessary financial controls in place to operate its voucher program in an efficient,
effective, and economical manner.




1
    The mayor of Dallas appoints board members.
2
    Audit report number 2007-FW-1003, “The Dallas Housing Authority, Dallas, Texas, Mismanaged Its
    Portable Vouchers.” issued on December 5, 2007.


                                                 4
                                  RESULTS OF AUDIT

Finding: Authority Management Failed to Implement Internal
         Controls to Ensure That It Properly Managed Program
         Funds
Contrary to the terms of its annual contributions contract and applicable federal
regulations, Authority management failed to implement internal controls over the
financial management of its voucher program and did not exercise sound management
practices. Although this has been an ongoing weakness, Authority management did not
take any substantive measures to ensure that even basic controls were established. As a
result, the Authority’s financial data were unreliable, its fund balances were incorrect,
and Authority management could not assure HUD that it spent program funds in
accordance with its annual contributions contract or federal regulations. Further, the
Authority certified to HUD that it expended about $32.4 million less in program funds
than it received in 2005 and 2006.


    Management Failed to
    Implement Basic Internal
    Controls


                  Contrary to requirements, 3 the Authority failed to implement basic
                  controls to effectively, efficiently, and economically manage and operate
                  its voucher program. Internal controls should be an integral part of the
                  Authority’s management of its voucher program and should be used to
                  direct, monitor, and measure its resources. Its controls should also provide
                  some assurance that its resources are protected from fraud and abuse.

                  Authority management failed to implement basic internal controls 4 over
                  the financial management of its voucher program and did not exercise
                  sound management practices. The Authority did not (1) have written
                  policies and procedures, (2) maintain an adjusted trial balance showing the
                  reconciliation of the year-end general ledger to the financial statements,
                  (3) establish subsidiary general ledger accounts, (4) effectively monitor its
                  budgeted expenses and revenues, (5) post transactions to or reconcile
                  general ledger and bank accounts in a timely manner, or (6) reconcile or
                  validate the amounts posted during automated transfer of data between

3
     Annual contributions contract and 24 CFR (Code of Federal Regulations) 85.20(b)(3).
4
     According to the Committee of Sponsoring Organizations of the Treadway Commission, internal
     control is broadly defined as a process, affected by an organization’s people and information
     technology systems, designed to help the organization accomplish specific goals or objectives.



                                                    5
                  accounting systems. Further, many of the Authority’s voucher program
                  accounting staff who performed day-to-day accounting functions did not
                  have formal accounting training. Also, management did not adequately
                  segregate duties, and there was no evidence that approvals or
                  authorizations were required or consistently performed.

                  As a result, the Authority’s financial data were unreliable, its fund
                  balances were incorrect, and Authority management could not assure
                  HUD that it spent program funds in accordance with its annual
                  contributions contract or federal regulations. This condition caused the
                  Authority to submit inaccurate cost information to HUD and could result
                  in reduced program funding and perhaps deprive eligible program
                  recipients of housing assistance. 5

    The Authority Did Not Have
    Written Policies and
    Procedures

                  Authority management did not design and implement written policies and
                  procedures to ensure accurate, properly authorized, supported, and
                  consistent processing of transactions. Written policies and procedures are
                  a fundamental element of internal control. They help to ensure that
                  management directives are carried out and necessary actions are taken to
                  address risks to achievement of the entity’s objectives. Control activities
                  should occur throughout the organization, at all levels and in all functions,
                  and should include a range of activities including approvals,
                  authorizations, verifications, and reconciliations. Authority management
                  did not establish and implement written policies and procedures for any of
                  the basic controls.

     The Authority Did Not Have an
     Adjusted Trial Balance



                  The Authority did not provide an adjusted trial balance or other document 6
                  showing the reconciliation of its year-end general ledger balances to its
                  financial statements for fiscal year 2005. According to the Authority and
                  its independent auditor, 7 the Authority provided an adjusted trial balance
                  for its 2005 financial statement audit. However, the Authority did not
                  provide or reproduce the document for this audit. An adjusted trial

5
     Notice PIH (Public and Indian Housing) 2007-14.
6
     According to the Authority, its software produced a reporting tree that served the same purpose as an
     adjusted trial balance.
7
     KPMG International.


                                                     6
                   balance reflects how management adjusted the balances in the general
                   ledger accounts to arrive at the amounts reported in the audited financial
                   statements. Without an adjusted trial balance or other document showing
                   the connection between the general ledger and the financial statements, it
                   was unknown whether management made the necessary adjusting entries
                   to the general ledger balances to ensure that it supported the financial
                   statements.


    The Authority Did Not
    Maintain Subsidiary Account
    Ledgers

                   The Authority did not maintain subsidiary account ledgers supporting
                   entries into its general ledger. A general ledger should contain the
                   financial statement accounts of a business and reflect a summary of all the
                   transactions occurring within an entity. Conversely, subsidiary ledgers
                   should show the details underlying the balance of an account in the
                   general ledger. However, contrary to this concept, the Authority posted
                   both summary and detail entries directly to its general ledger. In addition,
                   for the summary entries entered into its general ledger, the Authority did
                   not maintain subsidiary ledgers supporting those entries. This
                   methodology for posting transactions to the general ledger resulted in a
                   13,000 page document that was not useful as a management tool.

                   For example, the Authority posted approximately 10,000 vendor
                   payments 8 per month using at least 69 different general ledger expense
                   accounts. It posted summary level information for the bulk of the
                   payments but entered detailed information for thousands of voided checks
                   directly into the general ledger. The voided checks appeared a number of
                   times in the general ledger, as the Authority needed to reverse its entries in
                   cash and expense accounts. Posting this level of detail directly into so
                   many general ledger accounts made reviewing, analyzing, and reconciling
                   transactions extremely cumbersome. The Authority should use its general
                   ledger as a primary tool to properly manage and oversee its program.

    The Authority Did Not
    Effectively Monitor Its
    Budgeted Expenses and
    Revenues

                   The Authority did not provide documentation to support that it monitored
                   its budgeted or actual expenses. The primary purpose of budgeting is to
                   establish objectives and allocate available resources for individual


8
      Housing assistance and utility reimbursement payments to landlords and clients.


                                                     7
                   programs and the Authority as a whole. HUD required 9 the Authority to
                   compare budgeted to actual amounts to analyze its performance. Planning
                   and monitoring budgeted and actual revenues and expenses and analyzing
                   differences should be an integral part of the Authority’s business
                   operations.

                   However, the Authority did not have a budget process in place to
                   determine whether its actual revenues and expenses were within budgeted
                   amounts. In addition, it was unable to identify and address why its
                   administrative costs increased by 37 10 percent from 2005 to 2006. Thus,
                   management operated its voucher program without fundamental financial
                   oversight and failed to identify and correct a number of errors in its
                   accounting records that are discussed in this finding.


     The Authority Did Not Post to
     or Reconcile Accounts in a
     Timely Manner


                   The Authority did not routinely reconcile its general ledger or bank
                   accounts in a timely manner. In a double-entry accounting system, every
                   transaction is recorded with equal debits and credits so that the equality of
                   the debits and credits may be tested as proof of accurate recording.
                   Periodic reconciliations of the general ledger accounts ensure that equal
                   postings were made. If differences in the balances occur, periodic
                   reconciliation allows for timely correction of errors or omissions.
                   Similarly, timely reconciliation of the bank accounts serves to detect and
                   correct errors. The Authority did not reconcile its accounts, post
                   transactions, or void outstanding checks in a timely manner. In addition,
                   the general ledger contained duplicate and unexplained accounts.

                   The Authority Did Not Post or Reconcile to Its General Ledger in a
                   Timely Manner

                   The Authority did not routinely reconcile its general ledger accounts and
                   continued to make entries after year-end. For example, it did not record
                   January 2005 bank deposits in its general ledger cash account until
                   January 2006. In total, it did not record more than $45 million in
                   transactions to this account until after year-end. As a result, it had
                   inaccurate year-end balances in its general ledger accounts. If the
                   Authority had routinely reconciled its general ledger, it should have
                   identified and corrected these errors and omissions.


9
       24 CFR 85.20(b)(4).
10
       The Authority’s administrative expenses increased from $9,066,681 in 2005 to $12,448,033 in 2006.


                                                     8
                 The Authority Did Not Perform Bank Reconciliations in a Timely
                 Manner

                 The Authority did not perform bank reconciliations in a timely manner,
                 sometimes up to one year late. For example, a reconciliation of a January
                 2006 bank statement was dated January 4, 2007. Reconciling bank
                 statements is an important element of fiscal responsibility that helps to
                 ensure that the general ledger reflects accurate and complete financial
                 information. The Authority maintained three bank accounts for its
                 voucher program: a transfer account that received program funds from
                 HUD, a direct deposit account used for electronic vendor payments, and a
                 checking account used for traditional vendor payments.

                 Management neglected to establish written policies or provide training for
                 employees to follow in performing the bank reconciliations. As a result,
                 the reconciliations appeared to have been performed on a trial and error
                 basis in many instances. For some monthly bank statements, employees
                 performed multiple reconciliations with different results and no indication
                 of the correct one. For example, the Authority had 11 reconciliations of
                 the June 2006 bank account, dated between November 2006 and January
                 2007, with no indication of which, if any, was correct.

                 As another example of this poor control over its assets, the Authority’s
                 bank records showed that a check drawn on the Dallas Independent School
                 District’s account cleared through the Authority’s checking account in
                 January 2007. The bank did not identify the error, and the payment was
                 not discovered until December 2007, when the Authority reconciled its
                 January 2007 bank statement. The Authority must routinely reconcile its
                 bank statements for all accounts on a timely basis to ensure that its records
                 accurately reflect cash balances and that transactions posted to its accounts
                 are valid. If management had properly reviewed and approved bank
                 reconciliations it should have known these problems existed and corrected
                 them.

                 Management Did Not Properly Account For Outstanding Checks

                 Management did not properly account for outstanding checks, resulting in
                 inaccurate general ledger account balances. In January 2007, it had 6,087
                 outstanding checks on its voucher program checking account totaling
                 $906,553. Of this amount 5,186 checks totaling $648,530 were
                 outstanding more than 60 days. It issued these checks between January
                 2004 and December 2006. 11 The checks state that they are “void after 60
                 days.” As a prudent business practice, the Authority should void
                 outstanding checks if they are not presented for payment within a
                 reasonable period. It should reclassify the outstanding obligations in
11
     One check was dated January 2002.


                                               9
                  accordance with generally accepted accounting principles and state law;
                  thus, putting the $648,530 to better use.

                  The General Ledger Contained Unexplained and Duplicate Accounts

                  The general ledger contained the following unexplained accounts that had
                  significant balances:

                     Table 1: Unexplained accounts
                                                 General ledger                          Account
                        Account number         account description                       balance
                      851-281000           Unreserved Surplus                         $704,710,574
                      851-284000           CUM HUD                                     698,693,851

                  The Authority’s finance staff could not explain what these accounts
                  represented. The Authority is required to report accurate and valid data to
                  HUD. In its response, the Authority stated the accounts represented an
                  antiquated method of accounting for the reserves.

                  The Authority’s general ledger also had a number of duplicate accounts.
                  As shown below, the Authority had five different accounts in the general
                  ledger for the same purpose:

                       Account number                  General ledger account description
                          851-112938                         Port Receivable
                          851-112985                         Rec. – Port Vouchers
                          851-112986                         Portable Receivable
                          851-112987                         Portable Rec’able
                          851-112988                         AR-Port Vouchers

                  Of these five accounts, the Authority only used two consistently during the
                  audit period. The other three accounts appeared to be unnecessary. The
                  Authority acknowledged that it had duplicate accounts within its general
                  ledger. This condition occurred because staff members in two different
                  departments created new accounts rather than using existing accounts.
                  The ability to create new accounts should be limited to a few key
                  personnel with required supervisory approval. This practice would not
                  only reduce the likelihood of duplicate accounts but also should improve
                  the ability to reconcile balances, reduce the likelihood of errors, and
                  reduce the opportunity to create fictitious vendor accounts. According to
                  the Authority, it recently reduced the number of accounts from 62,000 to
                  about 12,000 to eliminate the unnecessary accounts. The Authority needs
                  to establish controls 12 over creating and maintaining general ledger
                  accounts, including supervisory approval and documentation of changes.


12
     The controls should include written policies and procedures relating to its chart of accounts.


                                                      10
     Data Transferred between
     Systems Were Unreliable and
     Unverified

                   The Authority’s method of transferring data between its two software
                   systems resulted in unreliable and inaccurate data. The Authority used
                   two different software systems to record transactions, maintain its general
                   ledger, and compile its financial reports. It had a number of errors and
                   omissions when it transferred data between systems, including inaccurate
                   and unverified postings of expenses, improperly recorded checks, and
                   “bad date checks.” Although management knew of ongoing problems
                   with the data transfers, it did not take appropriate actions to resolve the
                   underlying issues or ensure the validity of the data.

                   Postings of Program Expenses Were Inaccurate and Unverified

                   The Authority posted program expenses to the general ledger without
                   ensuring the validity or accuracy of the data, as shown in table 3.

                     Table 2: January 2006 payments from direct deposit account
                              General ledger
                            account description          Debits             Credits
                      DHA Sec 8 DD                        $7,433,506
                      S8 HAP Vendor checks 01/06             237,089
                      S8 HAP Vendor checks 01/06                             $7,543,181
                               13
                      Unknown                                                   127,422

                   The debit of $237,089 and the credit of $7,543,181 were both posted to the
                   general ledger automatically during the data transfer. However, Authority
                   finance staff did not validate the amounts or make any determination
                   regarding their accuracy. The Authority posted more than $120 million to
                   its general ledger in this manner in 2006. The Authority’s finance staff
                   should perform some level of independent verification of financial
                   transactions and the propriety of data in general. Since the Authority was
                   aware of problems with the data transfers, it should have taken additional
                   steps to ensure that amounts were accurate.

                   Checks Were Improperly Recorded

                   On more than one occasion, the Authority had discrepancies between
                   checks recorded and checks issued that it could not explain. Since it
                   prepared checks as part of an automated process and used preprinted
                   check stock, these discrepancies should not have occurred. For example,


13
      The Authority’s general ledger did not have an account description for this transaction.


                                                      11
                  •   In August 2006, the Authority recorded check number 451702 for
                      $6,039 to one vendor. However, the check was issued to a different
                      vendor in the amount of $58,216. Although the check cleared the
                      Authority’s checking account in the amount of $58,216, the general
                      ledger continued to show the inaccurate amount and vendor.
                  •   In October 2006, the Authority recorded a series of 10 checks to 10
                      vendors totaling $6,331. However, it issued the checks to 10 different
                      vendors for $8,310. When vendors presented the checks for payment,
                      the Authority’s bank did not honor them. 14 However, the Authority
                      did not void the 10 checks in its general ledger until August 2007,
                      almost a year later.

                  The Authority could not provide an explanation for these errors.
                  However, Authority staff indicated that these types of errors were not
                  uncommon. These errors, combined with other errors discussed in this
                  report, further distorted the Authority’s financial records for fiscal years
                  2005 and 2006. As previously discussed, if the Authority had reconciled
                  its accounts in a timely manner it should have discovered these errors.
                  The Authority should also determine how these errors occurred and
                  implement necessary controls to prevent their recurrence.

                  “Bad Date Check” Errors Occurred

                  The data transfers between software systems caused other errors in the
                  general ledger, referred to by the Authority as “bad date checks.” The
                  Authority’s bank reconciliations showed a number of adjusting entries
                  with this description. Examples include the following:

                  •   Checks totaling $7,779 in January 2006 were correctly recorded in one
                      system, but during the data transfer, the check dates changed, and the
                      amounts were not recorded in the general ledger, resulting in
                      understated expenses in the general ledger. The Authority did not
                      correct this error until December 2006.
                  •   A series of voided checks posted in one system in March 2005 did not
                      post to the general ledger during the data transfer. Thus, the March
                      2005 general ledger was overstated by at least $5,200. In March 2006,
                      the voided checks appeared in the general ledger without explanation.
                  •   Voided checks in August 2005 totaling $26,829 did not post to the
                      general ledger during the data transfer because the check dates were
                      changed to May 2008 during this process. Thus, the Authority’s
                      voucher program expenses for August 2005 were overstated. The
                      Authority did not correct the error until December 2006.

14
     When the Authority prepared checks, it uploaded a file to the bank listing the individual checks and
     amounts. For the bank to honor the check, it must match the list sent to the bank. Since the file
     provided for these checks contained different amounts, the bank rejected them. However, this process
     did not prevent the bank from honoring the $58,216 in August 2006.


                                                   12
          Since thousands of similar entries were made annually in the general
          ledger, it was unknown how many of these types of errors occurred during
          the data transfers. Further, since the Authority did not reconcile or
          validate the amounts posted during this process, it could not provide
          assurance that these types of errors were not widespread and undetected.
          The Authority must implement controls to ensure the accuracy and
          reliability of its data transfers.

Training Staff, Segregation of
Duties, and Supervisory
Approvals Were Lacking

          In addition to having no written policies and procedures, many of the
          Authority’s voucher program accounting staff who performed day-to-day
          accounting functions did not have formal accounting training. Also,
          management did not adequately segregate some duties. Further, there was
          no evidence that supervisory approvals or authorizations were required or
          consistently performed. For example, one staff member with no formal
          training in accounting received direct deposit payment data from another
          department, made unsupervised adjustments to it, and transmitted the
          adjusted data to the bank for processing electronic payments to vendors.

          In addition, the Authority assigned the same employee the task of
          reconciling the bank statements for the direct deposit account. The
          Authority typically made more than $7 million in housing assistance
          payments through this account each month. It did not maintain
          supervisory review or approval of these activities, such as including
          initials on the adjusted data or bank reconciliations. This lack of training
          and supervision, coupled with failure to observe the basic safeguard of
          segregation of duties, exposed the Authority to greater risk of error and
          misappropriation of assets.




                                       13
     Inaccurate Reporting of
     Expenses to HUD Could Reduce
     Program Funding

                  Because of the deficiencies addressed throughout the finding, the
                  Authority did not maintain accurate or consistent information on the funds
                  received from HUD and funds it expended to house voucher program
                  families. Its inaccurate records could result in reduced funding and
                  perhaps deprive eligible program recipients of housing assistance. HUD
                  collects leasing and cost information from the Authority through its
                  Voucher Management System (VMS) and uses the data to determine
                  future funding for the Authority. For fiscal years 2005 and 2006, the
                  Authority recorded different amounts in its records than it certified to
                  HUD via VMS as shown in table 3.

                Table 3: Amounts in Authority’s records versus amounts reported to HUD 15
                                                  Fiscal year    Fiscal year
                           Description               2005           2006           Totals
                 Program revenue in the                          $140,108,275
                                                                             16
                 Authority’s general ledger       $134,117,534                  $274,225,809
                 Program expenses in the
                 Authority’s general ledger        132,387,195    117,207,745    249,594,940
                 Program expenses reported in
                 VMS and certified by the
                 Authority as correct               131,459,710   122,768,945    254,228,655
                Program funds provided by HUD     141,216,484 17  145,452,957    286,669,441
                Unsupported 18                       $9,756,774   $22,684,012    $32,440,786

                  Although the Authority reported different amounts for the voucher
                  program expenses it incurred, it could provide no assurance that any of the
                  amounts were correct. The only verifiable amount in table 3 was the
                  program funding provided by HUD. According to the Authority, it
                  recorded its program funds as unearned revenues until it expended the
                  funds, at which time it recorded the funds as revenues. Thus, cumulative
                  revenue and expense balances should equal.

                  The Authority reported $254 million in expenses in VMS while it received
                  $286 million in voucher program funds from HUD in 2005 and 2006.

15
      The amounts do not include administrative fees.
16
      This number includes an additional $20,403,581 the Authority posted to its general ledger revenue
      account in December 2006.
17
      This includes $3,789,252 received from HUD for portability tenants in 2005. The Authority did not
      agree that the amount should be included.
18
      Unsupported amounts represent the difference between housing assistance payment expenses reported
      in VMS and housing assistance payments provided by HUD.


                                                   14
                    HUD required the Authority to maintain an undesignated fund balance
                    account in accordance with generally accepted accounting principles 19 to
                    account for the $32.4 million difference. The Authority needs to ensure
                    that its undesignated fund balance includes the $32.4 million difference
                    and that it expends and accounts for those funds in accordance with HUD
                    requirements.

                    HUD required the Authority to report leasing and financial data via VMS
                    accurately and in a timely manner. 20 Since March 2007, HUD has
                    attempted to verify the Authority’s 2006 VMS submission. As of
                    January 9, 2008, the verification had not been completed because the
                    Authority could not support its expenses.

                    Further, for April through June 2007, the Authority reported voucher
                    program expenses in VMS of about $18.8 million. Other information
                    provided by the Authority’s information services department showed that
                    the Authority’s voucher program expenses for April through June 2007
                    totaled more than $31.9 million. 21 In comparison, the Authority reported
                    housing assistance payment expenses of more than $32.6 million and
                    $32.5 million in VMS for the same three months in 2005 and 2006,
                    respectively. Since August 9, 2007, HUD has repeatedly contacted the
                    Authority in writing, notifying it that the VMS submitted amount of $18.8
                    million did not appear accurate and that its 2008 program funding could be
                    adversely affected if it does not correct the amount. 22 Although the
                    Authority’s management was aware of HUD’s concerns, as of January 17,
                    2008, it had not adjusted its VMS submission for April through June 2007.

                    The Authority’s management was responsible for establishing and
                    maintaining effective internal control to ensure reliable and properly
                    recorded financial information. Management’s failure to implement these
                    controls could jeopardize its future program funding, hindering its ability
                    to meet its mission to provide affordable housing to low-income families.

     Lack of Internal Controls Has
     Been an Ongoing Weakness


                    The Authority has repeatedly been informed of its internal control
                    weaknesses. Its independent audit reports 23 for fiscal years 2004 and 2005
                    contained the following finding:

19
       Notice PIH 2006-03.
20
       ibid.
21
       While these amounts were unverified, the discrepancy demonstrated that the Authority did not provide
       consistent information about its voucher program expenses.
22
       Notice PIH 2007-14.
23
       Office of Management and Budget Circular A-133 audits performed by KPMG International.


                                                     15
                “The system of internal control as designed and maintained by DHA
                [the Authority] appears to be inadequate and not operating effectively
                to reasonably ensure DHA’s compliance with Federal laws,
                regulations, and program compliance requirements.”

             In addition, the Authority received a number of reviews and
             correspondence from HUD citing systemic problems related to its voucher
             program. Despite the Authority’s having been informed of its lack of
             internal controls, management has not corrected the weaknesses. This was
             further reported in an Office of Inspector General (OIG) report issued in
             December 2007 that identified questionable financial accounting and
             reporting regarding its portable vouchers.

Conclusion

             By failing to establish a control environment that safeguarded assets and
             ensured that the voucher program operated effectively and within budget,
             the Authority created an environment of haphazard recordkeeping and
             poor stewardship of the funds entrusted to it. Management neglected to
             establish basic controls over financial reporting, including providing staff
             with the written policies and procedures and guidance necessary to
             perform their duties. It also failed to

                •   Maintain an adjusted trial balance tying is records to its financial
                    statements,
                •   Maintain subsidiary ledgers,
                •   Effectively monitor its budgeted expenses and revenues,
                •   Post to and reconcile its general ledger and bank accounts in a
                    timely manner, and
                •   Reconcile or validate the amounts posted during automated data
                    transfers.

             Many of the Authority’s voucher program accounting staff who performed
             day-to-day accounting functions did not have formal accounting training
             and management failed to adequately segregate duties. It could not
             provide evidence that supervisory approvals or authorizations were
             required or consistently performed.

             The Authority has repeatedly disregarded findings of control weaknesses,
             which allowed the problems to fester, resulting in unreliable financial
             information and the possibility of reduced program funding for 2008. Due
             to the Authority mismanaging its program and neglecting to implement
             corrective action, it is in violation of the terms and conditions of its annual
             contributions contract and application regulations.



                                           16
Recommendations


          We recommend that the Director of the Fort Worth Office of Public and
          Indian Housing

          1A. Require the Authority to support or repay to its undesignated fund
              balance account the difference between expenditures reported and
              funding received of $32,440,786 for fiscal years 2005 and 2006.

          1B. Require the Authority to void and properly reclassify $648,530 in
              outstanding checks, thus putting the funds to better use.

          1C. Require the Authority to implement adequate internal controls over
              its financial management of its voucher program. At a minimum, the
              internal controls should address the weaknesses cited in this report.

          We recommend the Assistant Secretary for Public and Indian Housing

          1D. Take appropriate administrative sanctions, up to and including
              issuing a notice of default in accordance with section 15 of the
              annual contributions contract for the Rental Certificate and Rental
              Voucher programs.




                                      17
                     SCOPE AND METHODOLOGY

Our objective was to determine whether the Authority had the necessary financial
controls in place to operate its voucher program in an efficient, effective, and economical
manner. To accomplish our objective, we

   •   Reviewed relevant criteria;
   •   Interviewed HUD and Authority management and staff regarding the Authority’s
       financial operations;
   •   Interviewed KPMG personnel and reviewed KPMG working papers;
   •   Analyzed and evaluated the Authority’s bank records, general ledger, financial
       statements, and budgets;
   •   Reviewed relevant Authority personnel files;
   •   Reviewed financial data from HUD’s Voucher Management System;
   •   Reviewed financial statements from HUD’s Financial Accounting and
       Assessment System; and
   •   Reviewed HUD monitoring reports.

We conducted the audit in accordance with generally accepted government auditing
standards. Our audit generally covered the period January 2005 through December 2006.
We expanded the review period as necessary to accomplish our objective. We performed
audit fieldwork at the Authority’s administrative offices in Dallas, Texas, from July 2007
through January 2008.




                                            18
                                  APPENDIXES

Appendix A

           SCHEDULE OF QUESTIONED COSTS AND
             FUNDS TO BE PUT TO BETTER USE




              Recommendation         Unsupported 1/      Funds to be Put to
                  Number                                   Better Use 2/

                      1A                 $32,440,786
                      1B                                          $648,530




1/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured
   program or activity when we cannot determine eligibility at the time of audit.
   Unsupported costs require a decision by HUD program officials. This decision, in
   addition to obtaining supporting documentation, might involve a legal interpretation
   or clarification of departmental policies and procedures.

2/ Recommendations that funds be put to better use are estimates of amounts that could
   be used more efficiently if an OIG recommendation is implemented. This includes
   reductions in outlays, deobligation of funds, withdrawal of interest subsidy costs not
   incurred by implementing recommended improvements, avoidance of unnecessary
   expenditures noted in preaward reviews, and any other savings which are specifically
   identified. In this instance, the amount represents funds that the Authority needs to
   remit to the rightful owner or reprogram in accordance with generally accepted
   accounting principles and HUD requirements.



                                           19
Appendix B

   AUDITEE COMMENTS AND OIG’S EVALUATION




                    20
Comment 1




            21
Comment 1




Comment 2




            22
Comment 3




Comment 1



Comment 4




            23
Comment 5




Comment 6




Comment 7


Comment 6




            24
Comment 1




Comment 8




            25
Comment 1




            26
                     OIG Evaluation of Auditee Comments

Comment 1   The Authority acknowledged that they did not have sufficient policies and
            procedures during the audit period. The Authority asserts that it has or
            will implement improved procedures to correct deficiencies. Our audit did
            not evaluate changes implemented subsequent to our audit period. The
            Authority should work with HUD to implement the recommendations.

Comment 2   The Authority’s response referenced an adjusted trial balance provided at
            the exit conference. However, the document provided did not reflect the
            relationship between the year-end balances in the general ledger and the
            financial statements. For example, the general ledger reflected an ending
            cash balance of ($653,488) for 2005; whereas, the document provided by
            the Authority for the same period reflects a cash balance of $65,371. The
            Authority did not provide documentation to reconcile the general ledger to
            the adjusted trial balance provided at the exit conference.

Comment 3   We modified the report to reflect additional information provided at the
            exit conference. While the Authority did provide additional information
            detailing the administrative revenues and expenses, it did not provide an
            explanation of the causes and actions taken to correct the 37 percent
            increase in administrative expenses between 2005 and 2006. During the
            exit conference, Authority officials stated that the budgets, along with any
            overages, were provided to the board on a periodic basis and provided
            recordings as evidence. The recordings contained the initial adoption of
            the 2006 housing choice voucher program. However, the recordings did
            not have discussions of the expenses or variances. The Authority should
            followup on variances on its budget to actual reports.

Comment 4   The Authority asserts it has taken actions of voiding and properly
            classifying outstanding checks, reducing accounts, and limiting the
            creation of new accounts. These actions should have positive impact on
            the management and operation of the Authority. The Authority will need
            to submit evidence of implementation to HUD for verification.

Comment 5   The Authority should continue to modernize its accounting system and
            accounts to ensure compliance with requirements and standards.

Comment 6   The Authority’s response did not adequately address what caused the
            improperly recorded checks cited in the report. While the Authority
            explained how it solved a problem with its check printer, the checks cited
            in the report were not caused by this check printer error, and the Authority
            did not provide a plausible explanation for how this occurred.




                                         27
Comment 7   The Authority’s statement to require future landlords to utilize direct
            deposit can improve the management and efficiency of its operations. We
            would encourage the Authority to require existing landlords to utilize
            direct deposit to further reduce the use of paper checks.

Comment 8   We did not change the amounts in the report table or conclusions formed.
            We did modify the section as needed to further clarify. The Authority
            provided some evidence in its response that it is currently segregating the
            net assets of its housing choice voucher. However, we did not audit the
            details of the evidence as they were outside our audit period. The
            Authority must comply with HUD requirements including Notice 2006-
            03. Specifically, the Authority must be able to differentiate housing
            assistance payment equity (budget authority in excess of housing
            assistance payment expenses) from Administrative Fee equity
            (Administrative Fees earned in excess of administrative costs). The
            Authority must work with HUD to ensure it enters accurate, reliable data
            into VMS in a timely manner. Additionally, the Authority’s calculation of
            its undesignated fund balance did not include an opening balance, prior to
            January 1, 2005, or subsequent to December 31, 2006.




                                        28